Natural Gas Fundamental Analysis, March 29, 2017

Position-squaring ahead of the expiration of the April futures contract helped push natural gas prices higher on Tuesday. Buyers were once again supporting the market due to expectations that supplies will be tighter than they were last year.

On Monday, sellers were worried about increasing supply due to expectations of lower demand due to the return of warmer temperatures with the start of spring. This strongly suggests investors should prepare for a choppy, two-sided trade until temperatures start to rise with the start of cooling season.

May Natural Gas futures closed at $3.177, up 0.046 or +1.47%.

Forecast

Helping to hold the market in the upper end of the range is the surprise tightness in supply. Supplies are tighter than last year due to low production and rising exports.

Bearish traders want to know how quickly storage tanks will refill during the upcoming injection season. Bullish traders want to know when temperatures will rise enough to trigger further draws.

This week’s U.S. Energy Information Administration storage report is expected to show a 37 billion cubic feet draw, far below last week’s 150 Bcf.

The amount of natural gas in storage is still well above the five-year average, but supplies are some 16% lower than they were this time last year, according to EIA data.

Technical factors may influence prices today because of potential resistance levels at $3.213 and $3.272. I think a move over $3.272 will make short-sellers nervous. However, taking out the top at $3.311 could fuel aggressive short-covering.

A sustained move under $3.122 will be the first sign of weakness today. A traded through $3.056 will turn the main trend to down.

If Tuesday’s rally was due to the expiration of the April futures contract then we could see renewed selling pressure today. The selling pressure could increase if temps continue to move toward more seasonable levels. Prices could plunge later in the week if the EIA report shows a lower draw than expected.

I think the fundamentals are solid for a rally this year, however, it would help if we had above average temps this spring.